After being released into the blood stream it binds with receptors in the bone marrow, where it stimulates the production of red blood cells (erythrocytes).
Blood doping is the process of artificially increasing the amount of red blood cells in the body in an attempt to improve athletic performance. In the past this was accomplished by transfusion. The athlete would 'donate' a unit of blood into storage and then 3 weeks later, after the body had completely replaced the blood loss, transfuse the unit back into the body. This would occur just before a big race, effectively giving the athlete an 'extra' unit of blood. This enables performance improvements in endurance sports because of the extra oxygen carrying capacity.
EPO has put a whole new spin on blood doping. No need for messy transfusions, just shoot up with EPO to increase your circulating erythrocyte mass. Until recently accurate testing has been difficult because the recombinant human EPO made in the lab is virtually identical to the naturally occurring form and there are no firmly established normal ranges for EPO in the body.
Source: Mark Jenkins, MD, Director of the Student Health Service at Rice University